House File 190 - Introduced HOUSE FILE 190 BY WESSEL-KROESCHELL A BILL FOR An Act providing an exemption from state individual income tax 1 of certain tuition and related expenses of postsecondary 2 education and including retroactive applicability 3 provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1579YH (1) 86 mm/sc
H.F. 190 Section 1. Section 422.7, Code 2015, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 57. a. Subtract, to the extent not 3 otherwise deducted in computing adjusted gross income, the 4 amounts paid by the taxpayer for qualified tuition and related 5 expenses of the taxpayer or taxpayer’s spouse or dependent. 6 b. A deduction shall not be allowed under this subsection 7 to a taxpayer with respect to whom a deduction under section 8 151 of the Internal Revenue Code is allowable to another 9 taxpayer for a tax year beginning in the calendar year in which 10 qualified tuition and related expenses are paid. Any qualified 11 tuition and related expenses paid by such dependent during said 12 tax year shall be treated as paid by such other taxpayer to 13 whom the deduction under section 151 of the Internal Revenue 14 Code is allowable. 15 c. A deduction shall not be allowed under this subsection 16 with respect to the qualified tuition and related expenses of a 17 taxpayer if the taxpayer or any other person claims an Iowa tax 18 credit calculated on the basis of the same qualified tuition 19 and related expenses. 20 d. For purposes of this subsection: 21 (1) “Dependent” has the same meaning as provided by the 22 Internal Revenue Code. 23 (2) “Qualified tuition and related expenses” means the same 24 as defined in section 25A(f) of the Internal Revenue Code, with 25 the following adjustments: 26 (a) The amount of such expenses shall be reduced in the same 27 manner as provided in section 25A(g)(2) of the Internal Revenue 28 Code. 29 (b) The amount of such expenses shall be reduced to the 30 extent excluded under subsection 32 or 33. 31 (c) To the extent not already reduced under subparagraph 32 division (b), the amount of such expenses shall be reduced to 33 the extent excluded from gross income under section 529(c)(1) 34 of the Internal Revenue Code, except that the amount of the 35 -1- LSB 1579YH (1) 86 mm/sc 1/ 4
H.F. 190 reduction shall not include that portion of the distribution 1 which represents a return of any contributions to a qualified 2 tuition program qualifying under section 529 of the Internal 3 Revenue Code. 4 (d) The remaining amount of such expenses shall be reduced 5 to the extent excluded from gross income under section 6 530(d)(2) of the Internal Revenue Code. 7 Sec. 2. Section 422.9, subsection 2, Code 2015, is amended 8 by adding the following new paragraph: 9 NEW PARAGRAPH . j. If the taxpayer has a deduction for 10 educational expenses under section 162 of the Internal Revenue 11 Code, the taxpayer shall recompute for purposes of this 12 subsection the amount of the deduction under section 162 by 13 excluding the amount subtracted under section 422.7, subsection 14 57. 15 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies 16 retroactively to January 1, 2015, for tax years beginning on 17 or after that date. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill allows taxpayers to deduct from the computation 22 of net income for purposes of the individual income tax 23 the qualified tuition and related expenses of postsecondary 24 education to the extent not otherwise deductible under federal 25 or state law, and without amount or income limitations. 26 Federal law currently provides a deduction for qualified 27 tuition and related expenses in computing adjusted gross 28 income, but the deduction is subject to amount and income 29 limitations. For tax year 2014, the federal deduction is 30 limited to $4,000 of expenses if income does not exceed $65,000 31 for a single taxpayer or $130,000 for married taxpayers, and 32 $2,000 of expenses if income exceeds $65,000 but does not 33 exceed $80,000 for a single taxpayer, or if income exceeds 34 $130,000 but does not exceed $160,000 for married taxpayers. 35 -2- LSB 1579YH (1) 86 mm/sc 2/ 4
H.F. 190 The federal deduction is set to expire after the 2014 tax year. 1 The bill defines “qualified tuition and related expenses” 2 to mean the same as defined in Internal Revenue Code section 3 25A(f), which includes tuition and fees required for enrollment 4 or attendance at an eligible educational institution for 5 courses of instruction at such institution. An eligible 6 educational institution generally includes all accredited 7 public, nonprofit, and for-profit postsecondary institutions 8 that are eligible to participate in a federal financial aid 9 program under title IV of the federal Higher Education Act 10 of 1965. Expenses related to any course or other education 11 involving sports, games, or hobbies are excluded unless 12 it is part of the degree program, as are student activity 13 fees, athletic fees, insurance expenses, or other expenses 14 unrelated to the academic course of instruction. “Qualified 15 tuition and related expenses” does not include amounts 16 enumerated in Internal Revenue Code section 25A(g)(2), which 17 includes expenses paid from tax-exempt scholarships or other 18 payments, excluding gifts or inheritance, or from certain 19 veterans’ and armed forces educational assistance allowances. 20 “Qualified tuition and related expenses” also does not include 21 amounts excluded from the computation of Iowa net income as 22 contributions to or earnings from an Iowa educational savings 23 plan trust under Iowa Code chapter 12D, or from the computation 24 of federal gross income as distributions of certain earnings 25 from any qualified tuition program qualifying under Internal 26 Revenue Code section 529, or as distributions from a Coverdell 27 education savings account qualifying under Internal Revenue 28 Code section 530. 29 Taxpayers may deduct qualified tuition and related expenses 30 of the taxpayer or the taxpayer’s spouse or dependent. A 31 taxpayer who is eligible to be claimed as a dependent by 32 another is ineligible for the deduction, but any expenses paid 33 by the dependent may be claimed as a deduction by a taxpayer 34 who is eligible to claim the dependent for federal income tax 35 -3- LSB 1579YH (1) 86 mm/sc 3/ 4
H.F. 190 purposes. 1 An Iowa tax credit currently does not exist for the qualified 2 tuition and related expenses that are the subject of the bill, 3 but should one be enacted the bill provides that the deduction 4 provided in the bill will be unavailable to those taxpayers who 5 claim a state tax credit for the same qualified tuition and 6 related expenses. 7 Taxpayers who claim a deduction of educational expenses as 8 an itemized deduction under Code section 422.9, subsection 2, 9 are required to reduce that deduction by the amount deducted 10 under the bill. 11 The bill applies retroactively to tax years beginning on or 12 after January 1, 2015. 13 -4- LSB 1579YH (1) 86 mm/sc 4/ 4